4:40 AM
Risk Management
Every once in a while, car companies learn a lesson from history and act on it. This just might be one of those times.
A flurry of new small cars is arriving in the marketplace just as fuel prices have begun moving into "tipping point" territory - that place where pump prices actually change buyer behaviour, moving a flood of car shoppers from hulking gas guzzlers to pint-sized fuel-sippers.
The story is simple. Crude oil prices are veering toward $100 (all figures in U.S. dollars) a barrel. Triple-digit crude oil prices in the past have driven car shoppers into small cars, most recently in 2008. Back then, Detroit's automakers had very little to offer those customers and even the imports - many of whom have specialized in grocery-getters - had only a stand-pat range of offerings.
Not now. A bloody battle is shaping up in the small-car corner of the market. At the recent Detroit auto show, compacts like the Honda Civic, Hyundai Elantra, Hyundai Veloster and Ford Focus shared the spotlight with subcompacts like the Chevrolet Sonic and gasoline-electric hybrids like the Toyota Prius c concept.
Here's what made this all the more interesting: In 2011, unlike 2008, Detroit's three automakers have some serious offerings in the pipeline for small car shoppers.
"This is arguably the first time we've had a collection of smaller vehicles from the domestics that is truly competitive," Jeff Schuster, head of global forecasting for J.D. Power and Associates, told reporters in Detroit.
The timing is brilliant. In Toronto this week, a litre of unleaded regular gas topped $1.15, compared to 97.4 cents in mid-January. The early days of 2011 are starting to look eerily similar to the first half of 2008.
Remember... On Jan. 2, 2008, oil flirted with $100 a barrel; by late February, the price began a lengthy stay above $100. Indeed, oil broke through $110 on March 12, 2008; $125 on May 9, 2008; $130 on May 21, 2008; $135 on May 22, 2008; $140 on June 26, 2008 and $145 on July 3, 2008. Finally, on July 11, 2008 oil prices rose to a new record of $147.27.The price of a gallon of gas in the U.S. pushed past $4 and in Canada a litre of regular flirted with $1.50.
In the U.S., the so-called "tipping point" arrived somewhere north of $3 a gallon. That's when car companies noticed a dramatic shift in car shopping behaviour, away from big vehicles and into small ones. Three years ago, Detroit's car companies were in no position to cope with a sudden mass shift like this - not with two of them poised on the edge of bankruptcy and the third posting billions in losses and all of them heavily depended on pickups and sport-utilities for cash flow.
The lesson of 2008 has hit Detroit hard and in the right way. At the Detroit auto show, General Motors Co. unveiled the subcompact Chevrolet Sonic, for instance. It will take on the Honda Fit, the recently launched Ford Fiesta and others.
At Ford, the redesigned Focus had star billing. It will go up against the recently launched Chevrolet Cruze, Hyundai Elantra and others. Chrysler Group partner Fiat is rolling out its 500 minicar, too.
You see, car companies can learn. Beyond Detroit, a long list of car companies showed off new fuel-thrifty models at the North American International Auto Show. Collectively, they suggest most if not all car companies have a fresh view of where small cars fit into the big picture.
For Detroit's automakers, grocery-getters are no longer loss leaders needed only to meet corporate average fuel economy standards. And the small cars we're seeing today are not stripped down runabouts, but well-engineered cars with plenty of high-end content - from elaborate infotainment systems and heated steering wheels to voice activated controls and smart navigations systems.
Premium car makers are getting in on the act, too. The upcoming Lexus CT 200h hybrid hatchback and BMW AG's front-drive compact, code-named the UKL, are soon to vie for customers. Buick showed a premium compact called the Verano due to go on sale towards the end of the year.
Buyers should note, however, that all the car companies are looking to charge a decent dollar for small rides with big loads of premium content. Case in point: the 2011 Ford Fiesta, launched towards the end of last year, has an average transaction price of around $20,000 in both Canada and the United States. Chevy's Cruze compact, according to similar data from the Power Information Network, has a segment-leading average price of $21,467.
For its part, Ford plans to be as aggressive on pricing with the Focus as it has been with the Fiesta. Jim Farley, Ford's group vice-president of global marketing, sales and service, says Ford won't have to discount the new Focus because it's competitive or class-leading in everything from quality to fuel economy, from innovative technology to design, inside and out.
"We intend to be deadly serious about competing for the small group of customers at the very high end of the segment by offering them features and series that they have never seen from Ford," Farley said in Detroit.
It's a little early to be picking winners and losers from among the small car crop about to be harvested by dealers, but here are seven new entries worth checking out:
A flurry of new small cars is arriving in the marketplace just as fuel prices have begun moving into "tipping point" territory - that place where pump prices actually change buyer behaviour, moving a flood of car shoppers from hulking gas guzzlers to pint-sized fuel-sippers.
The story is simple. Crude oil prices are veering toward $100 (all figures in U.S. dollars) a barrel. Triple-digit crude oil prices in the past have driven car shoppers into small cars, most recently in 2008. Back then, Detroit's automakers had very little to offer those customers and even the imports - many of whom have specialized in grocery-getters - had only a stand-pat range of offerings.
Not now. A bloody battle is shaping up in the small-car corner of the market. At the recent Detroit auto show, compacts like the Honda Civic, Hyundai Elantra, Hyundai Veloster and Ford Focus shared the spotlight with subcompacts like the Chevrolet Sonic and gasoline-electric hybrids like the Toyota Prius c concept.
Here's what made this all the more interesting: In 2011, unlike 2008, Detroit's three automakers have some serious offerings in the pipeline for small car shoppers.
"This is arguably the first time we've had a collection of smaller vehicles from the domestics that is truly competitive," Jeff Schuster, head of global forecasting for J.D. Power and Associates, told reporters in Detroit.
The timing is brilliant. In Toronto this week, a litre of unleaded regular gas topped $1.15, compared to 97.4 cents in mid-January. The early days of 2011 are starting to look eerily similar to the first half of 2008.
Remember... On Jan. 2, 2008, oil flirted with $100 a barrel; by late February, the price began a lengthy stay above $100. Indeed, oil broke through $110 on March 12, 2008; $125 on May 9, 2008; $130 on May 21, 2008; $135 on May 22, 2008; $140 on June 26, 2008 and $145 on July 3, 2008. Finally, on July 11, 2008 oil prices rose to a new record of $147.27.The price of a gallon of gas in the U.S. pushed past $4 and in Canada a litre of regular flirted with $1.50.
In the U.S., the so-called "tipping point" arrived somewhere north of $3 a gallon. That's when car companies noticed a dramatic shift in car shopping behaviour, away from big vehicles and into small ones. Three years ago, Detroit's car companies were in no position to cope with a sudden mass shift like this - not with two of them poised on the edge of bankruptcy and the third posting billions in losses and all of them heavily depended on pickups and sport-utilities for cash flow.
The lesson of 2008 has hit Detroit hard and in the right way. At the Detroit auto show, General Motors Co. unveiled the subcompact Chevrolet Sonic, for instance. It will take on the Honda Fit, the recently launched Ford Fiesta and others.
At Ford, the redesigned Focus had star billing. It will go up against the recently launched Chevrolet Cruze, Hyundai Elantra and others. Chrysler Group partner Fiat is rolling out its 500 minicar, too.
You see, car companies can learn. Beyond Detroit, a long list of car companies showed off new fuel-thrifty models at the North American International Auto Show. Collectively, they suggest most if not all car companies have a fresh view of where small cars fit into the big picture.
For Detroit's automakers, grocery-getters are no longer loss leaders needed only to meet corporate average fuel economy standards. And the small cars we're seeing today are not stripped down runabouts, but well-engineered cars with plenty of high-end content - from elaborate infotainment systems and heated steering wheels to voice activated controls and smart navigations systems.
Premium car makers are getting in on the act, too. The upcoming Lexus CT 200h hybrid hatchback and BMW AG's front-drive compact, code-named the UKL, are soon to vie for customers. Buick showed a premium compact called the Verano due to go on sale towards the end of the year.
Buyers should note, however, that all the car companies are looking to charge a decent dollar for small rides with big loads of premium content. Case in point: the 2011 Ford Fiesta, launched towards the end of last year, has an average transaction price of around $20,000 in both Canada and the United States. Chevy's Cruze compact, according to similar data from the Power Information Network, has a segment-leading average price of $21,467.
For its part, Ford plans to be as aggressive on pricing with the Focus as it has been with the Fiesta. Jim Farley, Ford's group vice-president of global marketing, sales and service, says Ford won't have to discount the new Focus because it's competitive or class-leading in everything from quality to fuel economy, from innovative technology to design, inside and out.
"We intend to be deadly serious about competing for the small group of customers at the very high end of the segment by offering them features and series that they have never seen from Ford," Farley said in Detroit.
It's a little early to be picking winners and losers from among the small car crop about to be harvested by dealers, but here are seven new entries worth checking out:
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